Roto Pumps Ltd Management Discussions.
ECONOMIC OVERVIEW Global economy
The global economy is slowed down after strong growth in 2017 and early 2018. Chinas growth declined following a combination of needed regulatory tightening to rein in shadow banking and an increase in trade tensions with the United States. Global technology supply chains were threatened by the prospect of US sanctions, Brexit related uncertainty continued, and rising geopolitical tensions roiled energy prices. With these factors in consideration, the global economic growth is forecasted at 3.2% in 2019 against 3.6% in 2018 and 3.5% in 2020. Emerging markets and developing economies are expected to recover in 2020 while economic growth in advance economies is expected to decline further. Below table shows trends of global economic growth viz. a viz. growth in advance economic and growth in emerging markets and developing economies.
Growth of the Indian economy moderated in 2018-19 with a growth of 6.8%, slightly lower than 7.2% in 2017-18. Yet, India continued to be the fastest growing major economy in the world. India maintained its macroeconomic stability by containing inflation within 4% and by maintaining a manageable current account deficit to GDP ratio and the economy is expected to grow at 7% in 2019-20.
India arose from 11th position in world economy five years ago to become sixth largest economy of the world at 3 trillion USD. The Indian Government has targeted to attain a 5 trillion USD economy by 2024 to become 3rd largest economy of the world. This would bring increased business opportunities to your Company, however time ahead looks challenging.
The global market of pumps in 2018 was almost 50 Billon USD even though some reports estimated pumps market to be more than 50 Billion USD. Between 2019 to 2029 the pumps industry is estimated to grow at a CAGR of 4% to become 74 Billion USD by 2029.
The market for PD pumps has grown to occupy more than 25% of total pump market share and is continuing to gain its market share. Merger and acquisitions by Key players shall continue owing to the fragmented nature of pumps market to keep themselves ahead of the pack.
Indian pumps Industry is a significant contributor to countrys growth due to role of pumps as primary equipment. Pumps segment registered a rapid growth in the last few years mainly due to depleting ground water levels, rapid urbanization and various initiatives with the aim of improving infrastructure. The Industry grew @ 10% in FY 2019. India produced around 4.5 million pumps as per IPMA with revenue touching Rs. 200 Billion. The segment has about 800 companies with export to more than 100 countries, prominent countries include China, Germany, US, Japan and Italy.
The market remains highly fragmented with presence of few big companies and large number of small and mid-sized companies. The focus of the industry is on energy efficient products. The way forward provides immense growth opportunities for pumps manufacturers given the government increased focus on water management Make in India initiative and renewed push to infrastructure sector. With Indias minuscule base of 3-5% of global pumps market, the opportunities of growth are huge and the industry is forecasted to grow in excess of 10-15 % in the next five years.
The Financial Statements of your Company have been prepared in compliance with the requirement of the Companies Act, 2013 and the applicable new Indian Accounting Standards (Ind-AS) notified by the Ministry of Corporate Affairs. There is no material departure from the prescribed accounting standards in adoption of the accounting standards. The Management of Roto accepts responsibility for the integrity and objectivity of these financial statements, as well as for various estimates, provisions and judgments used therein, which have been made on prudent and rational basis in order that the same reflect a true and fair view of the affairs of your Company.
Non-current assets (gross) of your Company at 31st March, 2019 have been Rs. 10368.0 lacs against Rs. 9789.9 lacs as at 31st March, 2018. Composition of non-current assets has been as under-
Property, plant and equipment
Property, plant and equipment of your Company as at 31st March, 2019 have been Rs. 9163.7 lacs as against Rs. 8870.9 lacs on 31st March, 2018 representing net increase of 3.2%. The net increase in property plant and equipment has been mainly due to addition to the plant & machinery, computers and vehicles.
Capital work in progress of your Company as at 31st March, 2019 has been Rs. 7.00 lacs. This comprises of implementation fee advance for ERP software.
Investment property of your Company as on 31st March, 2019 has been Rs. 10.5 lacs. This comprises of let out Office premise.
Intangible fixed assets
Intangible fixed assets of your Company comprises of computer software, technical drawings and trademarks. Intangible fixed assets of the Company as at 31st March, 2019 have been Rs. 217.5 lacs against Rs. 136.1 lacs at 31st March, 2018. The increase has been mainly due to addition to computer software.
Investment in Subsidiaries
Investment in Subsidiaries of your Company as at 31st March 2019 has been Rs. 908.6 lacs against Rs. 738.8 as on 31st March, 2018. The increase in investment is due to acquisition of balance 40% stake of Singapore Joint Venture Company.
Deferred tax assets (net)
Deferred tax assets (net) of your Company as at 31st March 2019 have been Rs. 60.67 lacs against Rs. 10.3 lacs as at 31st March, 2018. The increase has been mainly due to lower written down value of property plant & equipment under Income tax there by creating deferred tax assets.
Total current assets of your Company as at 31st March, 2018 have been Rs. 8041.4 lacs against Rs. 7006.6 lacs as at 31st March 2018 representing net increase of 14.8%. Composition of the Current assets as on 31st March, 2019 compared to 31st March 2018 has been as under-
Inventories of your Company as at 31st March 2019 have been Rs. 2440.9 lacs against Rs. 2189.0 lacs as at 31st March, 2018 representing an increase of 11.5%.
Financial assets comprises of trade receivables, cash & cash equivalents, other bank balances, loans and other financial assets. Financial assets of your Company as at 31st March 2019 have been Rs. 4143.9 lacs against Rs. 3620.4 lacs as at 31st March, 2018 representing an increase of 14.5%. The net increase in financial assets has been mainly due to increase trade receivables.
Other current assets
Other current assets of your Company as at 31st March 2019 have been Rs. 1456.6 lacs against Rs. 1197.2 lacs as at 31st March, 2018. The increase in other current assets has been mainly due to accumulation of input credit of taxes and higher advance income tax.
Total equity of your Company as at 31st March, 2019 has been Rs. 8433.1 lacs as compared to Rs. 7010.7 lacs as at 31st March, 2018 representing net increase of 20.3%. Composition of equity as on 31st March, 2019 as compared to at 31st March, 2018 has been as under-
Share capital of your Company as at 31st March, 2019 were Rs. 309.1 lacs. During the year, there has been no change in share capital.
Other equity of your Company comprises of securities premium, general reserve and retained earnings, which has been Rs. 8124.0 lacs as at 31st March, 2019 against Rs. 6701.6 lacs as at 31st March, 2018. The increase in other equity has been on account of profit for the year retained dafter distribution of dividend and dividend tax.
Non-current liabilities of your Company as at 31st March, 2019 were Rs. 123.2 lacs as compared to Rs. 216.9 lacs as at 31st March, 2018 representing net decrease of 56.8%. Composition of Non-current liabilities as on 31st March, 2019 as compared to at 31st March, 2018 has been as under-
Financial liabilities of your Company, comprises of long term borrowings, as at 31st March, 2019 have been Rs. 91.6 lacs against Rs. 163.0 lacs as at 31st March, 2018. The net decrease has been due to repayment of long term borrowings.
Provisions of your Company, comprises of provisions for employee benefits, as at 31st March, 2019 have been Rs. 31.6 lacs against Rs. 53.9 lacs as at 31st March, 2018. The decrease has been mainly due to contribution of amount against leave liability to Life Insurance Corporation of India.
Current liabilities as at 31st March, 2019 were Rs. 5049.1 lacs as compared to Rs. 5445.1 lacs as at 31st March, 2018. The composition of the current liabilities as at 31st March, 2019 compared to as at 31st March, 2018 has been as under-
Financial liabilities of your Company, comprises of short term borrowings, trade payables and other financial liabilities, have been Rs. 3638.4 lacs as at 31st March, 2019 against Rs. 3942.0 lacs as at 31st March, 2018. The net decrease has been mainly due to decrease in trade payables and other financial liabilities.
Other current liabilities
Other current liabilities of your Company, comprises of creditors for capital goods, advances from customers and taxes payable, have been Rs. 796.6 lacs as at 31st March, 2019 against Rs. 938.3 lacs as at 31st March, 2018. The decrease has been mainly due to decrease in capital liability.
Provisions of your Company, comprises of short term provisions for employee benefits and warranty, have been Rs. 46.1 lacs as at 31st March, 2019 against Rs. 69.0 lacs as at 31st March, 2018. The net decrease has been mainly due to contribution of amount against leave liability to Life Insurance Corporation of India.
Current tax liabilities
Current tax liabilities of your Company, comprises of provisions for income tax, have been Rs. 568.0 lacs as at 31st March, 2019 against Rs. 495.8 lacs as at 31st March, 2018.
The management believes that your Companys liquidity and capital resources would be adequate to meet its expected working capital needs and other anticipated cash requirements.
FINANCIAL AND OPERATIONAL PERFORMANCE
The principal source of Roto Pumps revenues is from the sale of pumps and spares and retrofit parts. Your Company has a rich heritage of designing and manufacturing superior products and technologies. Your Company offers comprehensive range of Progressive Cavity Pumps (PCP), with single screw and multiple screws for various industrial and municipal applications.
During the financial year 2018-19, your Companys financial and operational performance as compared to the previous financial year 2017-18 has been as under:
Your Companys total Income during the year 2018-19 has been Rs. 12981.5 lacs as compared to Rs. 11053.8 lacs during the year 2017-18, which represents an increase of 17.4%. Revenue from operations during the year has been Rs. 12776.0 lacs as compared to Rs. 10912.0 lacs during the previous year. Other income during the year has been Rs. 205.5 lacs as compared to Rs. 141.8 lacs during the previous year.
Your Company recorded Profit after Tax of Rs. 1529.8 lacs during the year 2018-19 as against Rs. 856.0 lacs in 2017-18. Profit after Tax has increased mainly on account of higher revenue and prudent management and control of operating expenses.
The Board of Directors of your Company has recommended a dividend of 25% for 2018-19. The payment of dividend would involve total a cash outflow of Rs. 93.15 lacs including tax on dividend.
Revenue from Operations
Your Companys income from operations comprises of domestic sales and exports sales. Revenue from operations during the year has been Rs. 12776.0 lacs as compared to Rs. 10912.0 lacs during the previous year, which represents an increase of 17.1%. Revenue from operations product wise viz. Pumps, Spares and Service Income has been as under -
Sales of pumps during the year have been Rs. 6159.7 lacs as compared to Rs. 5729.1 Lacs during the previous year while sales of spares have been at Rs. 6524.4 lacs as compared to Rs. 5123.3 lacs during the previous year. The service income has been Rs. 28.7 lacs against Rs. 18.2 lacs during the previous year. Other operating revenue mainly comprises of sales of scrap materials has been Rs. 63.3 lacs against Rs. 41.3 lacs during the previous year.
Export sales during the year have been Rs. 8553.2 lacs as compared to Rs. 7193.4 lacs during the previous year registering a healthy growth of 18.9%.
Composition of Export Sales and Domestic Sales during the financial year 2018-19 as compared to the previous financial year 2017-18 has been as under:
Domestic sales during the year have been recorded at Rs. 4222.9 lacs against Rs. 3718.6 lacs, which represent an increase of 13.6%. Composition of Domestic sales during the year as compared to the previous year has been as under-
Revenue from Sales of Pumps during the year was Rs. 2362.4 lacs against Rs. 2225.7 lacs during the previous year. Sales of Spares during the year have been Rs. 1778.3 lacs against Rs. 1439.1 lacs during the previous year. Service income during the year has been Rs. 18.9 lacs against Rs. 12.5 lacs during the previous year. Other operating revenue mainly comprises of income from sales of scrap and wastage has been Rs. 63.3 lacs as compared to Rs. 41.3 lacs during the previous year.
Export Sales by product
Exports Sales during the year have been Rs. 8553.2 lacs, which is higher than the previous years Rs. 7193.4 lacs, which represents an increase of 18.9%. Composition of Export Sales during the year as compared to the previous year has been as under:
Export sales of Pumps and spares have been higher by 8.4% and 28.8%, respectively as compared to the previous year. Exports service income has been higher at Rs. 9.8 lacs as compared to Rs. 5.7 lacs during the previous year.
Export Sales by Centers
Your Company executes exports sales from three Centers viz. Direct Export from India, Sales from Warehouse and Marketing Offices in Australia and United Kingdom. Export Sales from these Centers during the year as compared to the previous year have been as under-
Direct export sales during the year have been Rs. 3027.1 lacs against Rs. 2696.1 lacs in the previous year which represents an increase of 12.5%.
Sales from Australia Branch
Sales from Australia have been Rs. 2323.3 lacs as compared to Rs. 1938.4 lacs during the previous year, which is higher by 19.8%.
Sales from U.K. Branch
Sales from United Kingdom have been Rs. 3197.8 lacs against Rs. 2558.9 lacs during the previous year, which is higher by 25.0%.
KEY FINANCIAL RATIOS
Key financial ratios for the financial year 2018-19 as compared to the previous financial year have been as under. Clarifications on the changes exceeding 25% are also given.
|Debtors turnover(days)||102||101||0.43%||Negligible change|
|Inventory Turnover(days)||121||129||-5.64%||It improved due to higher turnover|
|Interest coverage ratio (times)||9||6||53.14%||It improved due to higher profit before tax and lower borrowing resulting in lower interest.|
|Current ratio (times)||1.59||1.29||23.77%||It improved due to decrease in current liabilities and higher current assets mainly due to higher inventory and debtors.|
|Debt equity ratio (times)||0.01||0.02||-53.26%||It improved due to repayment of long term debt.|
|Operation profit margin (%)||23.82%||21.05%||13.15%||It improved due higher sales turnover and prudent management of expenses|
|Net profit Margin (%)||11.97%||7.84%||52.64%||It increases due to higher sales turnover and prudent management of expenses|
|Net worth - Rs. in Cr||84.33||70.11||14.22||Increased by net profit for the year.|
|Return on Net worth (%)||18.14%||12.21%||48.57%||It improved due to higher turnover resulting in higher profit and prudent management of expenses.|
Your Company has been conferred "Best Global Business" by Dun & Bradstreet at its SME Business Excellence Awards 2018 and Export Excellence Award as Star Performer for the financial year 2016-17 by the Northern Region of EEPC India (Engineering Export Promotion Council).
HEALTH, SAFETY AND ENVIRONMENT
Your Company has been following policy for continuously improving health and safety standards and also preservation of environment. During the year, your Company has taken various initiatives and continues to comply with Occupational Health & Safety Management System Standards OHSAS 18001: 2007 and Environment Management System ISO 14001:2004.
OPPORTUNITIES AND THREATS
Formation of a strong and stable Government in the Country and with Govt. vision to become a 5 Trillion US Dollar economy by 2024 would lead economic growth & development across the sectors which would provide ample opportunities to the Company.
Overseas Subsidiaries, mainly in US and South Africa having completed over 3 years have formed an operational base and with a stronger team in place are going to be key growth centers for the Company. German Subsidiary slated to reassume operations by Q4 in the current financial year will enhance the market expansion into Europe with focus on major markets such as Germany & France.
Focus on Oil & Gas vertical is an area for business development. Navy & Coast Guards would also provide tremendous opportunities.
Markets across the Board are seeing intense competition and inbound policies of the major Countries are a cause of concern. Brexit in United Kingdom poses looming threat to the British Economy and will severely impact the business in case of no -deal Brexit. Trade disputes between USA & China and escalation of tension in Gulf pose threat of economic slowdown.
RISK AND CONCERNS
There is going to be continued pressure on margins due to increase in input costs on the one hand and lower prices due to competition on the other. Majority of revenue of your Company comes from Export, exchange rate fluctuations are a major concern. Any adverse economic development in Companys focus markets would affect business of the Company.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
Your Company has an adequate system of internal controls implemented by the management towards achieving higher efficiency in all areas of operations. These controls have been designed to provide a reasonable assurance with regard to maintenance of proper accounting controls, monitoring of operations, protecting assets from unauthorized use or losses, compliance with regulations and for ensuring reliability of financial reporting.
Your Company has initiated adoption of SAP software to strengthen its controls and processes, which was planned to put in use from the current year, is slated to put the same in place from beginning of the next financial year. This would allow integration of multiple locations on one platform and substantially improve overall efficiency of the organization.
The Audit Committee of the Board of Directors regularly reviews the adequacy of internal controls and takes necessary corrective actions wherever required.
RESEARCH & DEVELOPMENT
Research & Development Centre of your Company has been recognized by the Department of Scientific & Industrial Research, Ministry of Science & Technology, Government of India vide their letter no. F. No. TU/IV- RD/4371/2018 dated October 12, 2018. During the year, your company has incurred an amount of Rs. 219.10 lacs and Rs. 27.48 lacs towards revenue expenses and capital expenditure, respectively, totaling to Rs. 246.58 lacs, which constitutes 1.93% of the Revenue from operations of the Company. Previous year, it was Rs. 147.94 lacs and Rs. 46.13 lacs towards revenue expenses and capital expenses, respectively, totaling to Rs. 194.07 lacs, which constituted 1.78% of the revenue from operation of the Company.
HUMAN RESOURCES & INDUSTRIAL RELATIONS
We believe that in order to sustain growth under competitive conditions, the Human Capital of the Company should have high level of motivation and knowledge. The Company continues to focus and invest in human resources development to provide an open work culture and rewarding career opportunities to all its employees. During the year, your Companys HR division successfully recruited 56 people (replacements as well as new joining) in response to various business needs. Manpower strength as on 31.03.2019 was 350.
The overall employee relations were peaceful and harmonious throughout the year. The Company continued to create conducive work environment with opportunities for growth and learning, by implementing robust and comprehensive HR policies.
In order to support higher professional education of children of employees in staff and worker category, your Company had introduced Shri RR Gupta Memorial Scholarship during the year under review.
Under the scholarship, an amount of Rs. 1.00 lacs is granted to a student and paid over the tenure of the professional course in equal annual instalments upto five students. During the year, three students have been paid such scholarship.
Your Company is poised to grow in the next three to five years at CAGR of 15 to 20% despite global economic challenges. The Company has a strong manufacturing and marketing infrastructure with presence in five continents. Companys focus on R&D activities along with an experienced and motivated manpower will lead the Company to make inroads in major global markets and derive growth from the domestic market as well.
Roto Brand has seen tremendous acceptance in the market in the last 5 years and the company is amongst Top 10 manufacturers of Progressive Cavity pumps globally. Strong marketing initiative should enable the company to improve its position to becoming a prominent PC pumps manufacturer figuring in top 5 and a major PD pump player.
Your company is also looking for Inorganic opportunities in related products to strengthen its position in PD pump market and to contribute significantly to growth of the company going forward.
Statements in the Management Discussion Analysis describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities law and regulations. Actual results may differ from those expressed in the statement. Important factors that could influence the Companys operations include changes in Government regulations, tax laws, economic development within and outside the Country and such other factors.
|For and on behalf of the Board of Directors|
|Harish Chandra Gupta|
|Place: Noida||Chairman & Managing Director|